GJEPC’s Recommendations: Modification In The Revamped – Gold Deposit Scheme (R-GDS) and Gold Metal Loan (GML)

In a video conference with Shri. Tarun Bajaj, Secretary (Economic Affairs), Department of Economic  Affairs, GJEPC put forth its suggestions to modify few points within the Revamped – Gold Deposit Scheme (R-GDS)  that will enable its larger acceptance and garner additional deposits of idle gold within the country. GJEPC also kept its suggestion on a few points in relation to Gold Metal Loan (GML).

The Revamped Gold Deposit Scheme was formulated to mobilise and productively use idle gold held by households and institutions (estimated to be over 24,000 tonnes), has not yielded the desired results, garnering deposits of only around 20 tonnes of gold.

Colin Shah, Chairman, GJEPC said,“R-GDS has not been highly successful because of a host of factors, inter alia, including apprehensions from an income tax standpoint, trust deficit amongst various stakeholders, lack of geographical reach of banks, lack of commercial lucrativeness, cumbersome process entailing testing through designated purity testing centres, rigidity owing to non-tradability, a lock-in period, and penalty on premature withdrawal. The recommendations therefore are focused on addressing these aspects, which, in our view, will make the R-GDS a more feasible and attractive scheme.”

Considering the benefits that will flow from the R-GDS, GJEPC requested the Government to evaluate and implement the below recommendations, which are in-fact premised on features/aspects of existing schemes/legislations, which will thus make them easily implementable as well the same can be subjected to corresponding existing compliances/restrictions.

  1. GJEPC suggested that limits specified under CBDT Circular should be revised, through the R-GDS Circular, to the extent of 1 kg for a married woman, 500 grams for an unmarried woman,  and 200 grams for a male family member
  2. Market tradable e-deposit certificates can be issued to the depositor having the following attributes:
    • Unique certificate number accounted for digitally, under the R-GDS, in demat format
    • Certificate should have an in-built tracking mechanism, providing details of the original depositor, all subsequent holders, tenure of deposit and interest rate and mode, etc. 
    • The minimum threshold limit of 30 grams to be reduced to 10 grams and gold be accepted in fractions thereof
  1. Induction of jeweller as a point of collection can help overcome trust deficit as regard depositors as also help R-GDS penetrate in rural markets better, considering the geographical reach of jewellers. 

    Formal authorisation of jewellers as a point of Collection and Purity Testing Centres (CPTC), as per terms commercially agreed with the affiliated bank (including provision of adequate security), with following attributes:
  • Authorised jewellers be allowed to test, assay and determine pure gold content in their premises, and in terms of existing facilities and infrastructure, issue MTEDC upfront, based on sanctioned limits and deposit gold with the affiliated bank at a subsequent stage (say after 3 to 6 months). In addition, they should also be  entitled to a nominal service fee
  • Redeem such certificates upon maturity, specifically in areas with sparse banking coverage
  • Facilitation to open demat accounts, where required, in the manner prescribed
  1. To make the scheme commercially lucrative, the following recommendation were made: 

    Recommendations for jewellery: a) Rate of interest which is marginally higher than the base rate may be provided for deposits mobilised in the form of jewellery to compensate for reduced yield. b) A certain percentage of the value of deposit may be paid upfront to the depositor to wholly/partly compensate for the principal loss.

    Interest payable on medium-term and long-term deposits can be cumulated in terms of weight of gold, and, the total quantum of gold, including incremental gold which accrues in the form of interest, may be redeemed at the time of maturity (in gold terms or INR equivalent)

In terms of Gold Metal Loan (GML), GJEPC has raised the following points: 

  • Banks should be allowed to deal in derivatives (options/futures/swaps) on domestic/international exchanges (for example buying call option) and embed the cost in the pricing of the same in their GML lending cost.
  • Banks in India be allowed to freely use their Gold nostro accounts to deal with other banks dealing in gold for their borrowing, purchase, sale and its settlement.
  • Banks should be allowed to open Gold Ounce Account (GOA) (like Diamond Dollar Account) for their clients (jewellers, traders, refiners).
  • Banks insist on eBRC (Bank Realisation Certificate) as a part of monitoring export obligation. This is a large bottleneck for exporters as the Banks do not release the blocked performance margin of the exporter unless the export proceeds are realised. FTP should be revised so that the banks do not insist on eBRC from exporter clients.
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